Using the constant growth perpetuity formula, assume that you will receive $19,000 at the end of the first year this cash flow will grow 4% annually forever after that. With a cost of money of 9 percent, what is this opportunity worth today?

The opportunity is worth _______________.

You start a business and expect the following cash flows

Year	0	1	2	3	4	5
Cash flow		25000	45000	65000	45000	25000

How much is this series of cash flows worth today if you can earn 8% elsewhere on investments with similar risk? __________

What would this series be worth is the risk was higher and the required return is 12% instead of 8%? _____________

B Corporation has $1000 par value bonds with 7 years left to maturity, a stated annual coupon rate of 4.5 percent (with annual interest payments).

What are these bonds worth today if the required market rate of return is 6 percent? _________

What are these bonds worth today if the required market rate of return is 5 percent? __________

What are these bonds worth today if the required market rate of return is 3 percent? __________

What is the relationship between the coupon rate, changes in the market rate and the value of these bonds?

D Corporation has three bonds outstanding. All three have a coupon rate of 7 percent and a $1000 par value. The first bond has one year left to maturity. The second bond has 4 years left to maturity. The last bond has 8 years left to maturity. Assume for simplicity that the market rate for all three bonds is now 4 percent.

What is the value for the first bond with one year left to maturity? ___________

What is the value for the second bond with four years left to maturity? ______________

What is the value for the first bond with eight years left to maturity? ___________

Assuming the same stated interest rate, in an environment of increasing interest rates which bonds will decrease in value the most -- the one with a longer term (duration/maturity) or shorter term (duration/maturity)?

H Corporation has a bond outstanding. It has a coupon rate of 8 percent and a $1000 par value. The bond has 5 years left to maturity but could be called after three years for $1000 plus a call premium of $50. The bond is selling for $1060.

The yield to maturity on this bond is __________The yield to call on this bond is _________